In rebutting a federal lawsuit claiming that it defrauded its clients, Goldman Sachs argues that its customers were big financial firms, intimately familiar with the complex financial securities the bank was selling. The Securities and Exchange Commission says that doesn't matter: Goldman omitted details when selling the investment, and these might have deterred customers from placing their bets, which turned on the future health of the housing market, the agency charges.

A trial before a federal jury in Manhattan is still a long ways off, and the parties could still settle out of court. Goldman's top lawyer on Tuesday left the door open to an "agreeable" settlement.

The firm, however, may not be willing to settle for much. Several securities lawyers said the SEC has its work cut out in trying to prove that Goldman duped clients -- primarily New York-based firm ACA Financial Guaranty Corp. and German bank IKB.

"It's not sure-fire," said Jeffrey Plotkin, a lawyer at Day Pitney and former SEC enforcement official. "These are highly sophisticated folks who made their own determination as to the direction of the housing market."

The SEC argues that a little-known financial firm with a nondescript name was misled about an investment that Goldman was working to assemble. ACA -- or more precisely, one of its subsidiaries -- was in the business of helping banks choose which home loans to package together into a security.

In early 2007, Goldman asked ACA to help one of its clients, John Paulson, a hedge fund manager, create such an investment linked to the value of home loans. According to the agency, Goldman led ACA to think that Paulson wanted to bet on a security that would increase in value. In fact, Paulson was looking to bet on a security that would decline. Paulson helped pick home loans that would form the basis for the investment, and these were loans that the hedge fund predicted would go bad.

After the investment was created, Goldman began to market it to investors such as IKB. Another subsidiary of ACA also invested.

Goldman doesn't concede that it misled ACA. The bank says that there is no reason to believe that ACA executives thought that Paulson was going to bet that the security would go up.

But no matter, Goldman contends that even the facts as presented by the SEC don't amount to a violation of securities law. This is because of a legal concept known as "materiality." It's not enough that Goldman didn't tell clients everything possible about the deal, according to securities lawyers. It's a matter of whether that information would have led the clients to make different investing decisions.

Goldman has stressed that ACA and IKB -- as big boys in the financial industry -- would have bet on the mortgage investment even if Paulson's role had been disclosed.

"The defense that the two key investors were considered some of the most savvy also indicates that it was not really material omission because it may not have modified their behavior," said Ron S. Geffner, a partner at Sadis & Goldberg and a former SEC enforcement official.